Insights into global expansion & employee retention

Published: May 19, 2022

How to Do Payroll for an International Business

Whether you’ve based your international business in Boston or Brussels, Toronto or Tokyo, understanding how to do payroll is essential.
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That’s because setting up your global payroll is the first step toward long-term financial success. You need an accurate payroll to understand your business expenses while ensuring compliance with local laws. Knowing how to do payroll is crucial in this process.

By following the below steps, you can set up your international payroll and boost your employee happiness regardless of whether you’re using dollars, euros, or yen.

Step 1: Understand Payroll

If you’ve never set up a payroll process, it may be helpful to know what it is and how it works. Understanding how to do payroll is crucial for any business.

In short, processing payroll constitutes the money a business is obligated to pay its employees for a given pay period.

While this may seem straightforward, payroll is affected by several factors, including:

  • Revenue
  • Expenses
  • Tax liabilities
  • Employee type

There is other information that accounting needs to take into account. What payroll data matters depend on the business. Many businesses have traditionally handled payroll through internal HR departments. 

However, given the complexities and time constraints of modern-day commerce, many companies choose to outsource their payroll needs to companies skilled at managing international payrolls.

How international payroll works

While the technical aspects of payroll differ depending on the business’s size, type and location, all payrolls follow the same basic protocols. Understanding how to do payroll is essential in maintaining consistency.

When an employee is hired, the business inputs the employee’s account (including payroll KPIs), contract and tax information into the payroll account.

The payroll account then distributes the employee’s payment (via direct deposit or check) based on the amount and dispersal date in the employee’s contact.

Now that you know how payroll works, let’s take a closer look at setting up a payroll abroad.

Women learning how to do payroll

Step 2: Read Up On International Tax and HR Laws

Understanding international tax and HR laws ,including how to do payroll is the second step in setting up an international payroll.

Like tipping etiquette and TV channels, tax and HR codes differ based on your employees’ locations. The last thing you want is to apply the same tax laws you knew in Madison, Wisconsin, to your burgeoning business in Mexico City.

To set up your global payroll for success, take note of the following information:

  • Employees’ country tax system – Tax systems vary by country. While some countries like the Bahamas and Qatar don’t tax local and foreign incomes, other countries, like the United States and Hungary, do. Many other countries tax local incomes while abstaining from taxing foreign incomes. Knowing your employees’ home income tax codes will pay dividends when it comes to setting up your payroll system. You should also fill up the appropriate tax forms in a timely fashion.
  • Exemptions In some countries, foreign employers are exempt from withholdings, pensions, and contributions. This gives big financial advantages to businesses whose employees reside in these tax-friendly countries.
  • Registration requirements To set up your payroll process in the United States, you must register your business. However, some countries simplify this process by requiring that you only register your payroll. You might still be on the hook for local taxes and withholdings, but you won’t have to spend time formally establishing your business on foreign soil.Knowing how to do payroll in different countries is essential in navigating these variations.
  • Minimum wage – If your business employs minimum wage workers, you’ll want to know the minimum wage laws of your international employees’ countries. While some countries have a fixed federal minimum wage, other countries have no minimum wage laws on the books.
  • Holidays – If your business offers holiday overtime or bonus pay, you’ll need to note the holidays in your employees’ countries for payroll purposes. For example, while February 11 might simply be another “Taco Tuesday” in the United States, it’s National Foundation Day in Japan. As a result, your business’s Japanese employees might expect bonus pay for working that day.

While understanding your employees’ country-specific tax laws might seem like a herculean task, you don’t have to wade through international payrolls alone.

Instead of checking out every international tax codebook at your public library, hire a company that can provide you with the country insights you need to seamlessly set up your global accounts.

Step 3: Set Up Your International Payroll

With the knowledge to navigate international financial waters, you’re ready to construct your payroll.

Like domestic payrolls, global payrolls must take several factors into account. These include:

  • Employee types
  • Pay cycles
  • Employee benefits
  • Payment methods

Let’s take a closer look at each of these important factors.

Employee types

The type of employee your international business hires is just as important as the employee’s location. Understanding how to do payroll for different employee types is crucial for accurate payroll processing.

Employees may occupy one of several employment categories, and each category directly impacts your running payroll.

For both international and domestic businesses, the most common employee types include:

  • Full-time – Full-time employees typically work 40+ a week and are eligible for benefits. That said, the number of hours full-time employees are required to work to meet their full-time classification differs based on the business and country. These workers are also usually salaried.
  • Part-time – In most U.S. businesses, part-time employees put in less than 40 hours a week and are ineligible for benefits. Additionally, part-time employees are usually hourly workers. If you hire part-time employees with different hourly wages, you’ll need to enter each employee’s hourly wage into your payroll.
  • Seasonal Although seasonal and temporary employees sound similar, there’s one big difference: temporary employees are hired throughout the year, while seasonal employees are typically hired to fulfill a company’s needs during a given season. For example, if you’re an international tax agency, you might hire seasonal employees only during tax season.
  • Freelance – If temporary workers are hired for a specific amount of time, freelancers are hired per job. Many international businesses choose to hire freelancers because they’re not technically employed by the business. Instead, freelancers are self-employed independent contractors untethered to an employer’s payroll.

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Pay cycles

Once you’ve classified your international employees, you’ll want to update your payroll with their pay cycles.

Most domestic and international businesses use one of the following pay cycles:

  • Monthly 
  • Semi-monthly 
  • Biweekly 
  • Weekly

Regardless of the pay cycle, your payroll has enough funds to pay your employees on their specified pay dates.

It’s equally important to pay attention to country-specific payday regulations. 

Luxembourg, for example, mandates that employees be paid on the last working day of the month, while Mexico has different pay cycles for different workers: weekly for “blue-collar” workers and biweekly for “white-collar” workers.

Employee benefits

If you offer domestic employees benefits, be prepared to offer your international employees the same benefits depending on their classifications.

The most common benefits include health insurance and retirement plans.

The good news is that some governments already provide employee benefits in the form of health insurance and retirement packages.

Other governments, however, require that businesses provide employee benefits regardless of where they’re based. Knowing how to do payroll in such cases becomes crucial.

If your employees live in countries that mandate government benefits, your payroll may be on the hook for benefits—even if you don’t provide them domestically.

Payment methods

Interested in other payroll solutions? Before the dawn of wireless transfers, employees were paid with checks and good old-fashioned cash. Now, given the prevalence of bank accounts and direct deposit, most international employees receive their wages via direct deposit.

However, if your international employees don’t have a bank account, you’ll have to pay your employees through an alternative payment management system

In addition to mailing checks and wiring funds through direct deposit, consider the following payment methods:

  • Payroll cards – A type of preloaded payment card, a payroll card is loaded with an employee’s funds on payday. Your employee can then use their card without opening a bank account.
  • Mobile wallets – Mobile wallets are similar to direct deposits. However, instead of wiring funds directly to an employee’s bank account, you wire funds to a financial platform primarily accessed through a mobile app. The most common mobile wallets include Venmo, Google Pay, and Apple Pay.

Whichever payment route you choose, be sure to note international wire transfer fees and regulations. 

Step 4: Simplify Global Payroll With Playroll

The wheel. The microwave. The automatic litter box.

When it comes to finding methods to accomplish tasks more efficiently, we’re the undisputed world champs. 

Why not do the same for your payroll by outsourcing to a platform specializing in multinational payrolls—Playroll

Setting up your Playroll account might be the best business decision you’ve made since taking your brand global.

To make doing payroll as easy as pie, take the following steps:

  • Open up a Playroll account
  • Add employees to your Playroll account by specifying their home countries
  • Kick back while Playroll handles their country-specific work contracts

Once your employees are in your Playroll, you can rest easy knowing Playroll has your running payroll needs covered. We can help you set up an automated payroll system.

Playroll: How to Do Payroll Made Easy

Running an international business brings a lot of joy—and a lot of work. Not only do you have to keep up with multinational accounts, but you also have to make sure your payroll is in tip-top shape. To help with this task, consider taking advantage of employer of record services.

Fortunately, Playroll makes keeping up with your international payroll a task you don’t have to worry about through our payroll service. Understanding how to do payroll in an international context is a key aspect of our service.

No matter your new employee’s location or role, Playroll brings your business to the world.

Ready to expand internationally? Schedule a demo to learn more or sign up for a free account.

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